A business plan is a formal statement of business goals, reasons they are attainable, and plans for reaching them. It may also contain background information about the organization or team attempting to reach those goals. Business plans may target changes in perception and branding by the customer, client, taxpayer, or larger community. When a new business plans to enter a target market, or when an existing business is to assume a major change or plan a new venture, a three to five year business plan is commonly prepared for investors or financial institutions to evaluate investment returns in that timeframe.
Financial institutions (e.g., banks) have large underwriting costs to approve small businesses for loans. The largest cost to underwriting a small business is analyzing the business plan. Small-sized loans (e.g., with a loan amount less than $500,000) are relatively expensive to underwrite and therefore are not profitable for the banks. As a result, many banks turn down well qualified small businesses for financing.